'The Hobbit' Trilogy Is A Bargain

Imagine you're a studio executive and you had the opportunity to spend $200 million a pop on three films in a trilogy that was all-but-guaranteed to earn $800-$1 billion at the worldwide box office per-installment. You'd probably agree in a heartbeat and plan how to spend your bonus. So when you read about the "shocking" news from Variety that Peter Jackson'sHobbit trilogy has thus far cost $561 million, don't be too alarmed. All-told, it's actually a pretty smart investment.

First of all, ten years of inflation accounts for at least a heavy portion of the cost difference (arguably 1/3), as does resigning old talent, paying Peter Jackson and company, plus the various new and expensive technological advances (like shooting in 3D and 48fps) and special effects toys. Second of all, all three Hobbit films have been shot already, meaning that the only extra costs from here-on-out will be post-production and any additional footage that Warner Bros. chooses to pay for. Second of all, the idea that the Hobbit trilogy, just two films in, has cost twice what The Lord of the Rings trilogy cost isn't quite accurate, at least not yet.

The number being thrown around for the Lord of the Rings series is $281 million, or $94 million per-film. Both of the sequels, The Two Towers and Return of the King cost well above that $94 million price-tag. That $94m per-film figure comes from the amount allotted in the original New Line Cinema deal which involved shooting and post-production for all three films at one time. But once Lord of the Rings: Fellowship of the Ring earned $869m worldwide, New Line allowed Peter Jackson to go back and tinker with and shoot more footage for the yet-unreleased The Two Towers, and again with Return of the King. That late-addition sequence of Orlando Bloom taking down an elephant in Return of the King wasn't free. Official figures are hard to come by, but Return of the King allegedly came in at around $150m by the end thanks to, among other things, the furious race to finish the film on time.

Even if I'm overestimating the additional costs, every dime Return of the King made was pretty much gravy after the insane success of the first two films. The main goal for Return of the King was to stick the artistic landing and win all of the Oscars. Done and done, with a $1 billion worldwide gross as a bonus. Let's presume/speculate that all-told that The Lord of the Rings trilogy cost $350-$400 million. Let's also presume that by the time the The Hobbit: There and Back Again is released next December the entire new trilogy costs $700m (a completely speculative figure that may be way too high or a too low come next year). So what? The franchise is guaranteed to make its money back and then-some even if the second two films see a relative comedown from An Unexpected Journey's $1 billion gross.

A Hobbit trilogy that ends up costing a total of $700m by next December (a reasonable estimate) and goes on to gross $2.25 billion (a reasonable possibility presuming a sharp-but-not disastrous decrease in viewership for the next two installments), we're still looking at triple the budget with many more millions to come on DVD, blu-ray, VOD, and endless television runs on TNT. And that's assuming my number isn't way too high on one end and/or way too low on the other. Obviously a $650m franchise that pulls in $3 billion worldwide paints an even rosier picture.

Three Hobbit films at $700 million total works out to about $235m per, which isn't that insane when it comes to these kinds of films. Go ahead and pick any modern top-tier film franchise. The Amazing Spider-Man cost $230 million to produce, so it stands to reason that each of the next 37 sequels will cost anywhere from $200m-$250m a pop, give or take savings if they choose to possibly shoot one or two of them back-to-back along the way. The Dark Knight trilogy cost $580m to produce while Michael Bay'sTransformers trilogy cost $550m to produce. The three Iron Man films cost $540m, the allegedly "cheaper" Pirates of the Caribbean: On Stranger Tides cost $250m while the first three cost around $650m. Anyone want to guess how much the next three Star Wars movies are going to cost?

Top-tier franchise films are really expensive and many of them race out of the gate with far less guarantee of a return on their investment than Warner Bros. had with a new batch of Hobbit films. Sure it makes a good "SHOCK!" headline to exclaim that The Hobbit parts 1, 2, and 3 have cost $561 million thus far, even throwing in the not-yet-accurate stat that they have cost double what The Lord of the Rings films cost. But just a bit of context (inflation, expectations, the fact that the three films are mostly finished, etc.) and franchise comparison shows that not only is this kind of money par for the course in modern blockbuster film making, but The Hobbit actually represents a sound investment compared to others of its ilk.

I've long said that the problem with Hollywood budgeting lies in spending Return of the King money on Fellowship of the Ring (cough-The Lone Ranger-cough). This time it's the completely logical play of spending Return of the King money (adjusted for inflation, natch) on an eagerly-anticipated prequel to Return of the King. It sounds like an easy call to me.

I've studied the film industry, both academically and informally, and with an emphasis in box office analysis, for 28 years. I have extensively written about all of said subjects for the last ten years. My outlets for film criticism, box office commentary, and film-skewing ...